Another scandal waiting to happen?

Equity release remains a controversial area of financial services, as illustrated by a row last week between a financial adviser and a household-name organisation over its new scheme. Saga, which specialises in financial products for older people, was criticised by adviser Key Retirement Solutions because the Saga plan does not adhere to the Safe Home Income Plan code, a voluntary agreement set up in the wake of the home income plan scandal of the Nineties.

Key also complained that Saga would be selling its plan directly to the public, with no obligation to provide advice. Saga draws attention in its press release to the fact that its product does not comply with the SHIP code, explaining that while SHIP requires two solicitors to be used (one for the lender, one for the borrower), Saga will use the solicitor chosen by the borrower in order to keep charges down.

Key also attacked the Saga interest rate as 'expensive' - while later admitting it had given incorrect information in its press release about the rate. Although not the cheapest in the market, the Saga rate does undercut some of its competitors and the company says it chose Scottish Widows as the scheme provider because of the competitive rate and flexible terms, allowing people to draw down money when they need it, rather than taking it in one go.

Other advisers and potential scheme operators remain concerned about the general complexity of equity release schemes and the potential for mis-selling. Many feel it is essential that home reversion plans are regulated and that homeowners considering equity release be advised that trading down - selling to release equity - should always be discussed as an alternative way to release capital tied up in property.